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Recently, Florida BCBS contracted with New Directions Behavioral Health to manage (carve out) it’s behavioral health service. The cost for this transition is enormous. Contracts with providers were terminated and new contracts with providers initiated.
Humana several years ago did the same thing and contracted with Lifesynch to carve out its mental health service.
What gives?
25 years ago managed care carve outs were the rage This was mainly because specialty behavioral health companies had special” know-how” to reduce costly inpatient stays. Over time the industry recognized that this “know how” was easily reproducible. A set of utilization guidelines in the hands of an experienced mental health clinician could achieve lower utilization and cost without resorting to a separate company with the attendant duplication of administrative costs. As a result big companies like Cigna, Aetna and United Health Care brought mental health services in-house, saving the administrative cost of running a carve out.
But now carve outs are back? Why?
The answer I suspect is an accounting gimmick. By outsourcing mental health on a capitated basis companies like BCBS FL and Humana may be able to count the full capitation as “medical loss, “ that is, as health care costs. Accounting rules may allow the full cost of a carve out–including the administrative costs (which can run up to 50%)–to count as actual health care service costs!
The new Obamacare health care law sets a base medical loss ratio that companies must meet (I think 85%) in order to participate in the program. By outsourcing mental health a FL BCBS or a Humana can recoup as much as 1% from administration to medical loss. The arithmetic goes like this: mental health services cost 4% of total health care expenses. If administrative costs are, say, 25% of that 4%, then by carving out mental health, 1% is potentially transferred from administrative side of the ledger to to health care side.
The case of Humana and LifeSynch is arguably even more perverse than that of Fl BCBS and New Directions. LifeSynch is one of the few national companies that does not accept electronic claims! They process only paper claims. The cost of processing paper claims is much more expensive that electronic claims. Also, paper claims result in more errors and more claims rejected or unprocessed. Also, providers who contract with LifeSynch get paid more slowly due to the longer turn around time caused by mail service, etc. The net result is that even more of the premium dollar goes to administration and less to actual health care service.
So who benefits from carve outs? If I am correct that the accounting rules allow the full carve out premium to be used as health care service costs, then healthcare companies are the big winners because they increase the medical loss ratio by counting administrative costs as health care costs.
Who loses? Beneficiaries who receive less care and higher premiums.
